023218/EU XXVI. GP Eingelangt am 28/05/18 Council of the European Union Brussels, 28 May 2018 (OR. en) 9364/18 ADD 5 TELECOM 154 MI 395 IND 144 COMPET 366 PI 64 RECH 226 DIGIT 107 CYBER 116 COVER NOTE From: Secretary-General of the European Commission, signed by Mr Jordi AYET PUIGARNAU, Director date of receipt: 18 May 2018 To: Mr Jeppe TRANHOLM-MIKKELSEN, Secretary-General of the Council of the European Union No. Cion doc.: SWD(2018) 198 final PART 6/6 Subject: COMMISSION STAFF WORKING DOCUMENT Digital Economy and Society Index (DESI) 2018 Delegations will find attached document SWD(2018) 198 final PART 6/6. Encl.: SWD(2018) 198 final PART 6/6 9364/18 ADD 5 KM/ek DG E2B EN www.parlament.gv.at EUROPEAN COMMISSION Brussels, 18.5.2018 SWD(2018) 198 final PART 6/6 COMMISSION STAFF WORKING DOCUMENT Digital Economy and Society Index (DESI) 2018 EN EN www.parlament.gv.at DESI Report 2018 Telecoms chapter Austria Market developments 1. Competitive environment The Austrian telecom market is showing increasing dynamics in 2017, as two mobile network operators are in the process of acquiring major fixed operators to develop more competitive bundled offers. These acquisitions inject further dynamics following the mobile merger in 2012 and the arrival of new MVNOs as a consequence of the merger remedy, as well as the acquisition of the incumbent A1 Telekom Austria by America Móvil. Mobile services continue to play a prominent role in the Austrian telecommunications market both for voice and broadband services. While the mobile operators are in the process of entering the fixed market, the incumbent A1 Telekom Austria maintains a strong position in all market segments. In September 2017, the second mobile operator Three (Hutchison Three Austria) took over the fixed network operator Tele2. Tele2 was the largest unbundling operator and one of the largest fixed network operators in Austria. While Tele2 is predominantly active in the fixed segment (but also active as MVNO since 2015) and has a significant share in the fixed business market, Three has not yet provided fixed services on the retail market before the takeover. Since December 2017, T-Mobile Austria is in the process of acquiring UPC Austria. This acquisition would enable T-Mobile to complement its recently agreed VULA product with its own physical component to match the bundle offers of the incumbent. a. Fixed market Coverage AT-2016 AT-2017 EU-2017 Fixed broadband coverage (total) 99% 99% 97% Fixed broadband coverage (rural) 94% 94% 92% Fixed NGA coverage (total) 89% 90% 80% Fixed NGA coverage (rural) 41% 45% 47% Ultrafast coverage (total) no data 66% 58% 4G coverage (average of operators) 89% 97% 91% Source: Broadband Coverage Study (IHS and Point Topic). Data as of October 2016 and October 2017. In 2017, 90% of all households were covered by a high-speed broadband next generation access (NGA) network, which is above the EU average of 80%. The rural coverage of high- speed fixed broadband grew from 41% in 2016 to 45% in 2017, but the growth is below the level and growth pace of the EU average (47%). 4G coverage (97%) and ultrafast coverage (66%) is above EU average (91% and 58% respectively). Concerning NGA roll-out plans, A1 remains the key player in rolling out high-speed networks, but is also the major beneficiary of the Austrian broadband subsidy scheme. A1 continues to deploy mainly FTTC technologies relying on VDSL, G.fast and vectoring, while FTTH are deployed mainly in newly built areas. All major cable networks have upgraded to DOCSIS 3.0 and offer bandwidths up to 300 Mbit/s. FTTC/B/H investments by alternative 1 www.parlament.gv.at operators continued to remain limited in 2017, but further momentum is expected in the coming years when state aid subsidised projects will be realised. Fixed broadband market shares AT-2016 AT-2017 EU-2017 Incumbent market share in fixed broadband 58.1% 58.0% 40.3% Technology market shares DSL 65.4% 64.2% 64.2% Cable 32.0% 32.9% 19.4% FTTH/B 1.3% 1.8% 12.9% Other 1.2% 1.2% 3.6% Source: Communications Committee. Data as of July 2016 and July 2017. A1’s total market share in fixed broadband remained essentially unchanged at 58%, which is still considerably higher than the EU average (40.3%), while cable subscriptions could only gain minimal ground (32.9% compared to 32.0%). In the cable market, the largest cable operator UPC was active in consolidating smaller cable operators in the past years, but is now in the process of being acquired by T-Mobile Austria. In certain regions, telecom operators are also facing increasing competition mainly from regional electricity or utility providers as well as from communities that are active in the broadband market and are beneficiaries of the National Broadband Scheme. These state aid funded fibre networks are often operated by wholesale-only operators. As their coverage and effects on the market were still geographically limited, their domestic market shares do not always reflect the actual positions at local level. There are a few wholesale only operators in Austria with still very low coverage and low and scattered market impact, as they are usually part of or a result of state aid funded local projects scattered around in Austria. Their coverage is likely to increase with the realisation of further state aid projects. New entrants' DSL subscriptions by type of access (VDSL excluded) AT-2016 AT-2017 EU-2017 Own network - - 0.5% Full LLU 75.2% 72.0% 72.8% Shared Access 0.0% 0.0% 4.1% Bitstream 21.7% 24.6% 14.7% Resale 3.1% 3.5% 7.8% Source: Communications Committee. Data as of July 2016 and July 2017. Unbundling operators are less likely to invest in FTTC/B mainly due to low economies of scale. Operators in underserved areas that invest in fibre also rely on public funds (state aid scheme). Since May 2017, a revised virtual unbundling (VULA) offer is available to alternative operators that is also provided with regional handover points (in addition to local handover at the MDF-level). A1 is obliged to offer VULA with local and regional handover on its copper and NGA- network. The prices (gaps between retail and wholesale prices of flagship products) have been set based on an economic replicability test, and wholesale and retail prices are differentiated by bandwidth. The take-up of VULA has proved to be low so far (~17 000 lines in mid-2017). Nevertheless, in July 2017, the prices were reduced and A1 concluded a contract with the mobile operator T-Mobile Austria on VULA services. These terms include several other improvements and they are now part of the reference offer. 2 www.parlament.gv.at With regard to the technologies used, mobile broadband is considered as substitute in the residential segment, as bandwidths in the 4G network can be comparable or higher than those in the fixed network and mobile network operators are marketing flat rate mobile tariffs for stationary use at home with wireless modems. Accordingly, mobile broadband regained market shares in 2016 and 2017 after a few years of decline, and mobile broadband is considered an important driver of competition in the residential segment. Fixed broadband prices AT-2016 AT-2017 EU-2017 Fixed broadband price index [values between 0-100] 91 90 87 Source: Commission Services based on Fixed Broadband Prices in Europe (Empirica). Digital Economy and Society Index 2018. b. Mobile market Mobile market AT-2016 AT-2017 EU-2017 Market share of market leader 39% 38% 35% Market share of second largest operator 29% 34% 28% Number of MNOs 3 3 - Number of MVNOs 14 16 - Market share of MVNO (SIM cards) 5% - - Source: Communications Committee. Data as of October 2016 and October 2017. Mobile services constitute the key driver of competition in the Austrian telecommunication market more than ever before. In 2017, the two challenger operators were actively engaged in acquisitions of fixed operators, and one of them concluded a VULA agreement with the incumbent in 2017. There is a clear evidence of mobile substitution in (both voice and broadband markets); and this has also been recognised in market analyses, (notably in residential and non-residential voice minutes, voice access for residential users as well as residential (fixed and mobile) broadband markets). Concerning OTT substitution, in June 2017, RTR conducted a survey concluding that social media platforms are replacing now voice minutes to a larger extent than OTT Voice over Internet services. As a result of merger remedies (a requirement attached to the approval of the 2012 merger to accept up to 16 MVNOs), there is a flourishing MVNO segment in Austria. In late 2014, UPC entered the market (using the upfront MVNO conditions), and since then the regulated MVNO offer produced competitive wholesale counteroffers from the other two Austrian mobile network operators on a commercial basis. Among these new MVNOs, Ventocom acts as a mobile virtual enabler that provides technical platforms for branded products (mainly Hofer Telekom, but also other brands) using T-Mobile Austria’s commercial offer and network. Mobile broadband prices [EUR/PPP] AT-2016 AT-2017 EU-2017 Least expensive offer for handset (1 GB + 300 calls basket) €14 €11 €24 Least expensive offer for tablet and laptop (5 GB basket) €9 €10 €17 Source: Mobile Broadband Price Study (Van Dijk and Empirica). Prices expressed in EUR/PPP, VAT included. Data as of February 2016 and February (handset) 2017 - July (tablet-laptop) 2017.